10 Things I Know About ... Employee fraud
10) Fraud is more prevalent than you think. Employee fraud and embezzlement is a hidden problem, one not frequently advertised or reported. Losses reported to the Association of Certified Fraud Examiners for the 2018 Report to the Nations totaled more than $7 billion.
9) Smaller employers are at higher risk. The average loss in companies with more than 100 employees was approximately $100,000. The median loss in companies with less than 100 employees was approximately $200,000.
8) The most prevalent frauds are corruption, billing fraud, check and payment tampering, false expense reimbursements, skimming, and theft of cash on hand.
7) Embezzlement is usually a slow process. As the duration of the fraud continues, losses can grow exponentially. Fraud schemes lasting more than six years average more than $700,000.
6) Age characteristics. Most frauds are committed by employees who are between the ages of 35 and 45, but the largest losses are generated by employees who are more than 55 years old.
5) You can't spot fraudsters with a background check. Only 4% of fraudsters had a prior conviction. But that does not mean they haven't previously engaged in fraud. Only about 60% of frauds are reported to law enforcement authorities.
4) There are warning signs. 85% of fraudsters displayed at least one red flag; approximately 50% displayed multiple.
3) The red flags... include living beyond one's means, apparent financial difficulties, an unusually close association with a vendor or customer, control issues, an unwillingness to share duties, and family problems.
2) Tips. Organizations with hotlines detect fraud more often and suffer fewer losses. The best method to prevent and detect fraud is to develop an ethical culture, institute a code of conduct, and establish a tip-line.
1) Suspect fraud? Conduct an investigation and preserve evidence. Who is involved? How was the fraud perpetrated? What is the extent of the loss? Then, determine whether to make a referral to law enforcement for prosecution.
Kenneth C. Pickering, an attorney and certified fraud examiner, is chair of Worcester law firm Mirick O’Connell’s government and internal investigations group.
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